Overtime pay determined by exempt status

Oct. 25, 2012 07:47 AM

My employer wants to put together an employee incentive program where staff members work a certain amount of hours over a normal workweek and swap the pay for time off. He will take whatever the overtime hours are, times a percentage and reward us with time off based on that formula. Our entire staff is paid on salary and some of us already work more than 40 hours a week. Would anything like this pertain to salaried employees? What does the law say about this type of situation?

Daniel Pasternak

Squire Sanders

The answer to your question hinges on whether or not you are subject to the overtime provisions of the federal Fair Labor Standards Act.

Under that law, for overtime purposes, employees are classified as either exempt or non-exempt. A non-exempt employee is entitled to receive compensation at 1.5 times his or her regular rate of pay for any hours worked over 40 hours in a workweek. Exempt employees are exempt from the FLSA's overtime provisions and are not entitled to overtime compensation for hours worked in excess of 40 hours in a workweek.

You indicated that you and your colleagues are paid "on salary," but this fact by itself is not sufficient to determine whether you are an exempt employee. To answer that question, we would have to know how much you are paid and what kind of work you do.

Exempt employees must be paid a salary of at least $455 per week and perform certain duties and/or have certain responsibilities.

Since you do not say in your question whether your salary is at least $455/week and do not describe your job duties, we don't know enough to determine whether you are exempt or not under the FLSA.

Assuming that you are an exempt employee, your employer could implement the incentive program you describe because it is under no obligation to provide any form of additional compensation, whether monetary or time off, for hours worked by exempt employees in excess of 40 hours in a workweek.

If, however, you are a non-exempt employee, the FLSA requires that wages be paid in cash and does not allow a private, non-governmental employer to grant paid time off or comp time in lieu of overtime pay. Accordingly, in this situation, your employer could not give you time off, even if it was hour-for-hour, instead of paying you for overtime work.

Rose McCaffrey

Sherman & Howard

The answer to your question depends upon whether you are an exempt or non-exempt employee.

In general, employers must pay non-exempt employees overtime for all hours worked in excess of 40 hours during a scheduled workweek. Employers may not substitute overtime pay with compensatory time off. This proposed incentive plan is not lawful to implement for non-exempt employees.

If your position qualifies as exempt, your employer is not required to additionally compensate you for overtime. However, some employers choose to pay additional compensation to exempt employees for additional hours worked.

Generally, it is lawful for an employer to pay additional compensation as compensatory time off for hours worked beyond a normal workweek. The employer can determine the number of hours in a normal workweek for an exempt employee.

For example, an employer may institute a policy that it pays exempt employees in compensatory time off for each hour worked in excess of 50 hours per week, as opposed to the non-exempt 40-hour workweek.